What is Motley Fool’s “One Luxury Stock for the Ages?”

Sniffing out the "stock for the 1%" pick teased by Dave and Tom Gardner

By Travis Johnson, Stock Gumshoe, March 5, 2012

The latest promotional campaign for the Motley Fool’s Stock Advisor newsletter is perhaps a bit more honest than most …

… they make it clear up front that they’re going to tell you about a few ideas for free, but that they’ll just tease you about their favorite pick and will only give it to you if you sign up for their paid newsletter.

Which is exactly what the other publishers do, of course, so no surprise there — but at least they were clear about it from the first paragraph of the email ad.

The pitch is that they’re recommending …

“The One Stock Millionaire Investors Want to Keep to Themselves”

And

“The Secret Stock of the ‘One Percent'”

So naturally, we want to know what it is. And we don’t want to sign up for a subscription to their newsletter to find out, no matter how friendly they are about refunds (that’s just now how we’re wired here at Stock Gumshoe — we see riddles, we want to solve ’em).

The idea is that the luxury market will see a tremendous boom as the global economy recovers — and indeed, that it’s already doing fine and will only get better (the 1%, after all, are not facing a foreclosure crisis). I don’t think I’m quite in that 1%, though perhaps I’ll be there shortly if I can just figure out what stock to buy next …

And as promised, they spit out a few “luxury” picks that are Stock Advisor recommendations, gratis — the freebies, to save you a few minutes reading the ad, are Boston Beer (SAM), Williams-Sonoma (WSM), and BMW (BAMXF on the pink sheets). So you can see the definition of luxury is a fairly broad one — retailers and brand names that appeal to the upper echelon of consumers.

They also make a point of saying that there are plenty of “pretenders” to the luxury throne — companies that dilute their brand with junk, or who try to become luxury by overzealous marketing or what, at heart, are shoddy fad products. So that’s the threat: without the Foolies, you might pick the wrong stock to profit from the boom in global luxury brands.

And the promise? Well, that’s their “stock for the 1%” that they tease thusly:

“BUILT TO LAST: ONE LUXURY STOCK FOR THE AGES

“This luxury consumer brand was founded during World War II by six artisans working in a tiny, family-run workshop in New York. Today, the company operates more than 700 stores throughout the world where its assortment of prestige goods attracts legions of logo-loyalists. Hobnobbing at the upper-end of the fashion accessory spectrum, the company has done a masterful job of retaining its luxury brand status while expanding its customer base. And it is really expanding. The recent roll-out of men’s products has been nothing short of dynamite, and has fortified the company’s fashionable standing on both sides of the gender line.

“Led by a long-view CEO and girded by an outstanding operational model — with multiple sales channels, offshore manufacturing, superior branded product lines, consistent innovation, and a passion for customer service — the firm delivers an extremely profitable financial model. Over the past 10 years, it has improved its business in essentially every important financial category: revenue, revenue growth, operating margin, net margin, and return on assets. Add to these industry-leading numbers the fact that the company has a hoard of cash and very little debt, and you’ve got an investor’s luxury dream stock.

“But all these strengths aside, the consideration that has David and Tom Gardner so excited about this company right now is its global promise. After all, if there’s one factor that turns a great luxury brand into a great luxury growth brand, it’s international positioning.

“Over the past few decades, the global market for luxury goods has absolutely exploded. This is not just in Japan, where brand-conscious upper-class consumers have long embraced name fashions from the west. China and India, too, are becoming promising markets for luxury goods, and the oil-rich Middle East is right there with them. Discretionary incomes are on the rise in many parts of the world, and as the wealthy get wealthier, it’s a boon for luxury goods companies with an international foothold.

“‘The luxury goods sector in the emerging markets is a robust place to invest,’ says Matthew Deeprose of the international-focused Dominion Funds group, ‘because, while the demand for aspirational goods and lifestyle products is healthy in the west, the demand from the developing countries is off the scale.’

“Already well-established in Japan, and now making serious in-roads in China and the Middle East, the company we’re talking about here is perfectly positioned to take advantage of the suddenly ravenous global hunger for luxury brands. This is the catalyst that makes this a must-buy stock now.

“And that’s why you owe it to yourself to get the full, FREE report on this luxury brand immediately — while Wall Street and the rest of the investing world are still paralyzed by ‘economic meltdown’ thinking.”

So you can sign up for that FREE (withpaidsubscription) report if you like, but if you just want to learn the name of the stock and do your own research … well, just wait a sec while I toss those clues into the Thinkolator, wait for our little bell to ring to tell us it’s cooked up just right, and open the door to see that the pick is … Coach (COH).

Yep, you’ve heard of ’em. Me too. They are arguably the most “American” of the growing global luxury brands, though I suppose Tiffany might argue that point. And Coach was founded in the 1940s by six leather-working artisans in New York who churned out high-quality, in-demand products — in a loft where Coach’s headquarters still are today.

They seem to have pretty nimbly walked the tightrope to balance mass appeal, revenue growth, and brand protection to build quite a powerhouse over the last decade or so — before that they were quite small and had a very niche focus on plain, sturdy leather handbags. The couture aspect of over-the-top design has expanded their top end as they compete with the Guccis of the world, and they’ve continued to expand their outlet business to sell less-fancy products at much lower prices. I’d be worried that they lose exclusivity as they sell $150 handbags with a plastic sheen at the local Tanger Outlet Center, but apparently they’ve done it well.

Coach, like Tiffany (TIF) and most of the other luxury brands you could probably name off the top of your head, is trading at a bit of a luxury price, but it’s more Cadillac than Rolls Royce — the stock is changing hands now for about 18 times next year’s earnings (the trailing PE is about 24), and analysts think the growth will stay in the low-teens for years to come (The PEG ratio, PE dividend by growth rate, is around 1.3 — neither ridiculously cheap nor crazy expensive by most folks’ standards).

“Selling stuff to rich folks” has certainly been a good strategy for many — the crafter brewers like Boston Beer have definitely done very well, as have other past Fool picks in the area like Whole Foods Markets (WFMI), though for the single brand firms like Coach or Tiffany there’s always the risk that the brand can suffer from quality problems, or oversaturation, or whatever else (even being overly focused on one market, as Tiffany found when their Japan focus became a drag instead of a booster for a while). That said, all of the big global luxury brands are a little worried about Europe and are looking to China, India, Brazil and the other emerging markets for their growth — the 1% will be fine in the US and Europe or anywhere else, but the 5% and the 10% who fill their baskets at the outlet stores might be watching their bottom lines a little more closely.

I’ve never owned Coach and the stock I’ve been most tempted by in the luxury brand space lately has been Diageo (DEO), but maybe that’s just because I’d rather a stiff Johnny Walker Blue than a new wallet at the moment. If you’ve got an opinion on Coach or your other favorite stock for “the 1%”, well, just let us know with a comment below.

And if you’re one of the many Gumshoe readers who has tried out the Gardner brothers’ newsletter, please click here to review Motley Fool Stock Advisor for your fellow investors (you an also see a few of the recent reviews over to the right of this article). Thanks!


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19 Comments on "What is Motley Fool’s “One Luxury Stock for the Ages?”"

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Jerry McBrayer
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0
March 5, 2012 3:50 pm

Just a comment on luxury goods, Tata Motors of India (TTM) said they made the cheapest car in the world 2 years ago (under $3,000). They also bought two”Luxury” brands out of Britian several years ago ie, Jaguar and Land Rover. The company has joint venture plans for an auto plant in China costing 2.75 B. Their stock has risen over 75% since Nov 2011.
(I’m Long on the stock)

Spader
Guest
0
Spader
March 5, 2012 7:43 pm

Good report McBrayer. Just to add a note: Cramer raved about TTM @ $17.00 back in December , gamers, and analyst were all over it. Speculation is that the stock has growth potential in emerging markets. The Jaguar is a luxury staple. TTM could really hang their hats on this brand alone. Improve car’s performance, add an exclusive specialty feature, up the grade on luxury materials, then limit production. TTM can price it at where the superegos like to show off.

Joe Iglesias
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Joe Iglesias
March 5, 2012 4:37 pm

Don’t know if bedding can be considered a “luxury good” but I’ve watched (SCSS) The sleep number bed slowly and consistently rise from under 30 cents during the March ’09 lows to over $30.00 with no apparent end in sight. Although I bought the actual bed in 2010 and love it, I still haven’t bought the stock, because as soon as I do, it will surely drop. Yet I’ve never seen the stock touted anywhere during this time. Unless someone knows better.

jbk
Guest
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jbk
March 6, 2012 8:26 pm

Cramer touted scss a few weeks ago coming to the conclusion it was a better story(and bed) than tempur pedic.

x5kieffer
Member
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x5kieffer
March 10, 2012 9:04 am

Gosh, took SCSS off my watch list at $10, thought I missed the run….darn. I agree, if I buy it now…it will drop or trade side ways forever.

hd123sftail
Irregular
0
March 5, 2012 5:02 pm

Bought the bed myself around 5 years ago give or take a few. I’m terrible about time. Don’t own the stock either but the bed has been a great buy.

Leah G
Guest
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Leah G
March 5, 2012 5:27 pm
AS for Luxury goods…The Coach brand used to be a status item, but no longer would be what I consider “luxury”, except to the middle class, as their quality has gone down and the rich in Santa Barbara are more apt to buy far higher priced luxury status brands. BMW and Williams Sonoma have better appeal as old favorites of the 1%. I was a great customer of Coach 20 years ago when their leather was unsurpassed in durability and their hardware was solid brass, but they have changed quality to include the “plastic sheen” goods you mentioned. I’d rather… Read more »
dmg
Guest
0
dmg
March 5, 2012 5:35 pm
I was horribly wrong 2 and 3 years ago when the rage were the $1 stores and Wal-Mart. “People,” it was said then (and I agreed), “would conserve money, and buy no luxury items/goods, but instead shop at Wal-Mart – if they shop at all.” I note retrospectively the powerful run higher in the retailers index and related ETFs, and shake my head in amazement. Wall Street humbles me all the time, and this instance again. Which all means I cannot speak to whether Coach/COH will rise even higher from its current lofty perch, all time highs. I can say,… Read more »
1paglee
Irregular
210
1paglee
March 5, 2012 6:37 pm
I was able to get an allocation for 100 shares at around $10 when it went public as an IPO many years ago. I sold it eventually for a nice cap gain, but now I wish I still had it so I could sell it again. I checked a Point and Figure (P&F) chart today and foune it has gone straight up for 17 boxes after penetrating a triple-top by more than a couple boxes, a fabulpus buy signal at aroound $64! If I still had it, this would be a sell signal rather than a buy one But it… Read more »
1paglee
Irregular
210
1paglee
March 5, 2012 6:39 pm

I meant to add “buy after it corrects and it may do OK.

1paglee
Irregular
210
1paglee
March 10, 2012 2:27 pm

I checked the P&F chart again yesterday just to see what has happened to it, and I saw it did correct showing 3 boxes down , but then it rebounded neatly to a new higher box, so my previous sell notion is no longer valid. But it still seems kinda pricey and still I would buy it back only after some consolidation occurs around this new level.

Spader
Guest
0
Spader
March 5, 2012 7:18 pm

Today (3/5) on Fast Money, analysts bolsted about COH and KORS, giving both stock a “buy”. Although they mocked the “Man Bag” trend in European fashion.

Susan S
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Susan S
March 6, 2012 1:22 am
I agree with the poster who said that Coach is no longer a 1% luxery brand. In Houston, the only women carrying coach bags now are clearly middle class mall goers wearing middle class clothes as well. The 1% don’t want to buy what these women wear because it is no longer exclusive enough. There are also too many knock off Coach products out there. They also do way too much bling in order to appeal to their new target buyers–minorities who go into hock to buy their bags. Can you say, “Charge it!” With the exception of celebs like… Read more »
Joan in Houston
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Joan in Houston
March 6, 2012 4:09 pm
I am not in “the 1%,” however I do believe that COH goods are not as high-quality as they had been some years ago. Or should I say, “some decades ago?” I happen to have a piece which has an engraving upon the inside leather pocket, “Made in New York City.” If I wanted to buy a stock with a luxury-type appeal, I would buy Tiffany or LVMH, or perhaps I should say, I would buy “more.” By the way, Barron’s recently wrote up these sorts of companies, and in their table it appeared that the statistics were more appealing… Read more »
DaveK
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DaveK
March 10, 2012 6:58 pm

The one I have some of is Louis Vuitton Moet Hennessey (LVMUY on the OTC). The day after Christmas they had to have crowd control for the lines at the Houston Galleria, and they’re extremely popular in China. It’s up 20% year to date.

1paglee
Irregular
210
1paglee
March 10, 2012 2:33 pm

Travis, forgive me for neglecting to add that our prayers are still with you and yours while we hope for a speedy recovery.
Bob

Dave
Guest
0
Dave
March 10, 2012 6:37 pm

Any thoughts on Network Engines Inc (NEI) and Hanwha Solar One (HSOL)
which I’ve been watching.

Thanks

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